Starting an Investment Club

Starting an Investment Club

Notice how the title of this blog post is nothow to start an investment club, because to be honest I have absolutely no experience with the topic. Notwithstanding I am taking the plunge and starting an investment club with a few friends, and I love to hear your input. The idea for an investment club originated about 4 years ago, but quickly died down after my employer told me it was a hassle with regards to compliance. However, last week after a few scotches (best ideas start with that sentence) I decided with a co-worker to find out what “hassle” meant; turns out the speed bumps weren’t that bad. So we built a framework to share with others to see if anyone in our life would be interested.

Starting my Investment Club

Preliminary Work to Start an Investment Club

First thing my buddy and I had to do was figure out a number we were comfortable with contributing both to start with and as an ongoing monthly contribution. We came up with $500 a piece plus $100 per month per partner. The starting amount will allow for filing fees, and first few purchases. After that the ongoing monthly contribution will allow us to make a purchase or two but is no where near enough to make the partnership a burden.

Since this was just a conversation between 2 buddies at this point we figured we should come up with some type of investing framework. He is much more aggressive than I am so just a general investment strategy would be a dead stop for us. For example, I can’t possibly begin to sell him on my dividend income fund and him getting in and out of the VIX on an hourly basis makes my stomach churn, so we compromised:

25% will be in bear positions – Maybe this means Cash, gold, short etfs, treasuries, etc.

25% will be stable – probably means a long term index based ETF

50% – up to the collective wisdom of the group. Maybe someone wants to share an idea he has for a short term play, or a long term investment. Whatever it is he has to “sell” it to the group

Third step for us was seeing who was interested in our life. I reached out to a group of 10 or so people and I guess correctly who I thought would be interested. The SEC makes it very clear that we do not want passive members,

If every member in an investment club actively participates in deciding what investments to make, the membership interests in the club would probably not be considered securities. If the club has any passive members, it may be issuing securities.

If we are issuing securities we need to register with the SEC. Since I am not looking for a headache for my $100 a month, I’d like to avoid that paper work if possible!

Our Secondary Steps

Currently we are voting on a name.

Voting on President/Treasurer

Creating a system where only the president/treasurer have access to the accounts but everyone else can see them

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Evan is the owner of My Journey to Millions which was started to track his journey from a broke debt ridden law school graduate to building a positive balance. Need more Evan? Follow him on Twitter, Contact him or get new posts directly to your email

10 Comments

I’ve never started one, but I think having one would be pretty sweet. There have been some attempts in my area to make one as a forum for sharing ideas mostly, but the interest just wasn’t there. It’s a shame, really.

I’d check out http://www.aaii.com to see if they have any standard information/guides on what you need to start an investment club. My guess is that they do have some kind of resource for people who want to start one.

It’s a great idea but not very practical for me at this time. Although I think it’d be a fun way to interact and possibly segue into other financial topics. For some reason personal finance is still such a no-no to discuss.

I think in anything you do there is a level of risk involved, as long as the members understand that this is a long term partnership and learn to roll with the disagreements, then you should have fun with this. Will the club be reinvesting dividends or will you be dividing up the proceeds from the beginning?

Investment clubs are a great way to learn about investing. Part of the learning is staying in for the long haul. Investing with a group of friends makes it easier to focus your attention on investing on a regular basis. Over the long haul you will learn a lot.

Learning can mean making mistakes. Learning as a group means you can do it with less capital exposure of your own.

We’ve got lots of resources to help you get started and to manage your club. We’ve also got an active investment club community that I’m sure would be glad to share their investment club experiences with you.

I think its an interesting idea, but one of the challenges is probably getting agreement across different investing techniques, strategies and what to buy. I’m very focussed on dividends and dividend income, but I’m sure if I polled my closest friends that I’d get a broad range of interests. Where you have conviction on a particular method, and stock and you are passionate about it, it may be pretty hard to watch the club go in a different way. I think the idea of a club is probably great for people who are interested and willing to learn about investing but dont have a firm view. Of course if you have a club with like minded people investing with a certain strategy, that could be a recipe for success.

My Journey to Millions

My Journey to Millions is an 8 year old personal finance blog focused on topics including basic personal finance issues, advanced insurance planning, high net worth estate planning. In addition, there is a particular focus on dividend growth investing and option trading.